Five Years, Five Lessons: Driving Value in a Turnaround

In 2016 I embarked upon, what seemed at the time, to be an impossible rescue mission: turning around an insolvent 60 year-old family business in a sleepy industry - uniforms. COVID-19 got thrown in, just for good measure, along the way. Despite the odds, on July 1st, I passed the torch of a thriving and stable business to the next generation of family leadership in a management buyout - achieving a business transformation and exit goal that seemed near-impossible on many days along the journey.

Now that I’m considering my options for my next business adventure, be it another turnaround or buying a business myself, so many of my peers are asking me: 'what did it take to create value in a struggling private business and what lessons I’m taking with me?' Creating value, it seems, is just a fancy way of saying making money despite a challenging backdrop. So here goes - my take on the five things I learned that can drive value in private middle market companies:

1)??Find a Growth Platform

Re-envisioning a business requires an innovator’s mindset. At McCarthy's I could have launched initiative after initiative to try to grow revenue through McCarthy’s core market of school uniforms, but I knew that that growth would always be limited by that market’s size, which was not meaningful in the long term.

What we needed was a growth platform or a 10 year+ runway that positioned the business for generational growth. The key to building a revenue growth platform was looking for opportunities to expand into entirely different markets. In our case, that meant expanding into public-sector workplace uniforms. The company’s mindset had to shift: we weren’t a “school uniform product company,” we were a team with deep expertise in apparel sourcing and public sector relationship management.

Developing that muscle—that ability to boil our business down to its core capabilities and figuring out how to apply those capabilities to a meaningful market (especially one that’s 10x the size of the original market)—was key to value creation. In two short years, with existing infrastructure, our team secured over 15 contracts with major public sector partners. Our goal shifted from aspiring to become the behemoth in a small niche market to a goal of becoming a meaningful player in a massive market.

2)??Accept Trade-Offs

I think it can be hard for some leaders to shift from a corporate background to a private business where resources are necessarily scarce. When you’re trying to grow a mid-sized business, you can’t waste money on anything that doesn’t increase revenue or decrease costs. If that means some things are duct-taped together for a while, so be it. You have to accept that some things are going to be less-than-perfect.

Coming from resource-rich cultures where 110% was always the goal, it was a major shift for me to accept that, in a private middle market business, perfection can't always be the goal. Eventually I would hit a point of diminishing returns. The best example of this was our inventory fulfillment rate. Our team made incredible strides improving our fulfillment rate - literally from 60% to 99.5%. This shift delighted our customer and set industry records. However, closing the 0.5% gap to achieve 100% fulfillment would have meant material investments in automation, talent and inventory. It simply wasn't worth it or frankly even possible with our resources. Instead, we learned to use proactive communications to manage those customers who unfortunately fell in the 0.5% window. This trade-off principle wasn't just critical for our operating margins (which improved by 10%) but was also a positive for team culture. There is nothing worse for morale in a small business than expecting a Bay street output on a Main Street budget.

3)??Invest Based On Insight

At the outset of this turnaround, my team and I took the time, at the most senior levels of our team, to understand how our core customer was evolving. In a long-standing private business, it can be easy to assume you know what your customers need and want, but chances are, over time they change - even in a commoditized space like uniforms. We spent loads of time in the field, observing our customers, asking them questions, running market surveys and finding pain points.

These direct insights formed the blueprint for our key investment strategies. We wanted to put dollars against solving validated problems that our customers had (not against boardroom & textbook based hypothesis). In our school segment, for example, we learned customers needed a faster and easier school uniform buying experience, specific to their personal school community. This insight drove an investment in a 'top to tail' transformation of our e-commerce channels that resulted in digital sales growing from only 5% in 2016 to over 40% today (100% during COVID !). In our workplace segment, an insight that public sector procurement officials have challenges managing the administration of union worker uniform programs inspired us to invest in developing the world's first public sector uniform management platform - a key service differentiator that helped us win major new recurring contracts with public sector customers.

4)??Remember: 'Culture Eats Strategy for Lunch'

In small firm, especially a seasonal business, there needs to be a high degree of collaboration and 'switch hitting' across teams, otherwise things simply don't get done. I learned that, in order to motivate this type of cross-functional teamwork, it was critical to galvanize our team around a common purpose. That was no small task given the diversity of our employee group—we had a huge mix of legacy and newer employees, and multiple different languages spoken. There is a famous quote 'culture eats strategy for lunch' that came to life for me in this role. Sharing a vision and strategy was one part of the puzzle, but actually setting up the the team to achieve the vision - that was the hard part.

To inspire our team to pull in the same direction, I err'd on the side of over communication and people development. I shared key company information daily and released our detailed strategy to the whole company. I encouraged every single employee to complete a DISC personality profile to learn how different personalities interact. I encouraged employees to spend a day doing someone else's job ! I wanted everyone to understand how even the most 'junior role' was critical to our collective success.

One particular meaningful memory to me was taking our team (including all our warehouse workers) on a tour of an Amazon warehouse. In the post-tour Q&A with an Amazon executive, in which we found ourselves alongside senior executive teams from IBM an RBC, the Amazon executive asked the group 'what technology do you think makes the Amazon warehouse work so well?'. I have to admit I was surprised when our warehouse manager's hand shot up. 'Bar codes' he answered 'because when you have bar codes, you can track and move packages more easily'. I was at once astonished and inspired that, in this particular room of high octane executives, our warehouse manager had figured out the Amazon secret sauce. He, in turn, thanked me at the end of the day for taking the time to invest in his development via a 'field trip'. These human authentic moments - these are moments that create bonds strong enough to be able to withstand doing hard things together.

5) Be Ready for Tough Conversations with People You Love

Running a private business that you don't own outright means having a lot of open dialogue with shareholders, family members, legacy employees, private investors—and they’re often tough and uncomfortable conversations. It's often said that you shouldn't have business relationships with friends or family because most people fail at being honest with each other, when personal relationships are involved.

At McCarthy’s we are truly like a family. I have known the owners since I was a teenager (having been their babysitter in fact!) and our close-knit team had relationships that often spanned decades. I learned, over time, to cultivate an environment of mutual respect where it was understood we sometimes had to have honest and tough conversations. I learned that sometimes we were not on the same page and it was important to be honest about how to work through these differences in a productive way. Across our owners, hired guns, legacy employees - ultimately we all learned that our visions could diverge and converge seamlessly if we were always open to critical dialogue. (and sushi and laughs after tough conversations)

Carrying These Lessons Forward?

Leading McCarthy’s through such a dramatic turnaround was incredibly rewarding. I’m very proud to see our team armed with the skills and tools they need to continue thinking bigger and pushing themselves to greater heights and I am enjoying coaching from the sidelines in my new advisory role !

For my part, as I look to the future, I’m really excited to carry these lessons forward to my next business challenge. Stay tuned on that front...